Banks Should Be Experience Providers, and Blockchain Can Help

This week we interviewed Gregory Simon, co-founder at Loyyal. Loyyal is a startup company that uses blockchain and smart contract technology to create solutions for the loyalty rewards industry. Simon says that as technology continues to change, financial institutions need to think of themselves as experience providers.

How do you use blockchain?

Blockchain is critical to our solution because it removes the friction and allows an individual brand to operate more efficiently. For instance, we can issue or redeem rewards on a more scalable platform with less operational cost.

Blockchain also allows for better integration with other instruments of redemption partners. Whereas before it may have been cost prohibitive to have a sophisticated or complex redemption network, we’ve now removed the friction in setting that up, making it much easier for operators to create those arrangements.

What gap in the market are you aiming to fill?

For financial institutions we’re aiming to help with reputation. Banks are an intimate part of people’s lives, but they don’t have the best of reputations right now.

I worked for 15 years in banks before starting Loyyal, and I believe that the loyalty and rewards component of the business model is the ideal way to build a stronger personalized relationship with the customer. To do that we need to remove the barriers preventing those value added, individualized relationships with each customer according to their lifestyle.

Over the 15 years of working in this industry where have you seen change? What are the most notable changes when it comes to reward or loyalty in financial purchases?

I worked 15 years in financial services, and three years in loyalty. The loyalty industry is fascinating.

In the loyalty space there have been several changes. IFRIC, the accounting rules, said that all the programs had to put the points at full face value minus breakage, so that made it more expensive for a lot of programs to be operated. Then there was the change in interchange fees introduced last year in EU and before that in Australia. Because of this, a lot of financial institutions could no longer afford the charge that some of these groups like the airlines imposed, and that limited some co-branding options for consumers.

However, I think the biggest change is with technology. Blockchain only came out a few years ago, and yet here we are with a market-ready solution for loyalty.

What hasn’t changed is the loyalty model. It’s still traditional earn and burn. There hasn’t been any innovation, any creativity to create that deeper individual relationship with the consumer and creating value in the process of that.

What do you think the biggest thing is that financial institutions should do that they’re not doing related to loyalty?

They should be thinking of themselves as experience providers for the consumer.

When I was working at banks I thought of it as a place that stores money, lends money, and moves money around. But I think we have to change our perception.

A bank isn’t the custodian or transfer agent of money. It’s the service provider that is helping us convert our money into a good or service that maximizes a consumer’s utility. So I buy a house, and they advise me and help me get that mortgage.

We can take that to a much deeper level. We can use consumer information and combine that with our platform of Loyyal. The smart contracts layer allows us to dig deep into that data and recommend a personalized, better service for me as a consumer. Then the financial institution can transform themselves into being that value added layer to my wealth and helping to incentivize me to use it in a way that maximizes my utility according to who I am. Recognizing the value of this service, my loyalty to my bank strengthens. Loyalty should be about enriching the individual’s life experience, not simply rewarding repeat behavior.

Why do you think it’s so important for them to switch their mindset?

Because ultimately change has the promise of demonetizing the traditional business model of banks. The storing of money, lending of money, the movement of money.

You don’t need an intermediary in theory now so that’s a risk to the traditional business model.

They should look at the higher value-added services, creating that personalized experience, turning it into something consumers value. If banks could do that it will keep them ahead of the curve.

Otherwise this blockchain technology could disrupt the traditional model of banking.

What obstacles do banks and credit unions typically face when they’re trying to implement a rewards program like this and how do they overcome the obstacles?

This is where me having first hand experience at a bank helps out. The biggest one is the bureaucracy. I worked at three global banks in my career. I was a managing director for a period of time and one of the most frustrating things was getting people to agree on something in a timely manner. I think that bureaucracy prevents them from moving fast enough and I think that’s why they look to outside innovation teams like us.

I’m in a fintech startup because I love it and we can move fast and be nimble. By partnering with us they can access our ability to do that fast and quickly and incorporate it within their organization. With blockchain we’re talking about multiple banks agreeing on a standard.

I want to go back to something you said earlier, which was that you think blockchain opens the possibility of no longer needing an intermediary. Can you walk us through in detail what you mean by that?

Let me first state that there will always be a need for a financial services intermediary for most consumers. I, for one, like to know that there’s a financial services firm I trust that knows me.

What will change is the infrastructure required for them to give that to me. Blockchain holds the promise of removing a lot of the infrastructure required for me as a consumer to receive that service.

The institutions able to implement this new technology will survive and the slower ones will not.

It’s the equivalent of the Internet. When the Internet started and people were buying books on the Internet, I thought, “Why would I buy a book on the Internet?” But now I only buy books on the Internet. Anyone who’s not selling books on the Internet is probably not doing very well.

We’re at the very, very beginning of the same transition period. Banks have to be aware of what happened to brick and mortar sales and how the Internet changed that model. It’s a similar transition we’re initiating now with blockchain.

Speaking of blockchain, what would you say are the main value propositions of Loyyal?

We introduce interoperability between loyalty programs. We allow for multivendor coalitions. So you can have an individual brand merchant within a broader coalition program. You have the dynamic exchange and reduction, which is really key.

That’s where the smart contract utility comes into play where the rewards value, the function, any complex set of rules and external data key, that allows them to customize according to my lifestyle. The last one would be the liability management tools that are presented to the program operator.

These are liability balances they have to put on their balance sheet. They’re not recording the entire liability because they report full value less breakage. As the unreported liability accumulates over time this becomes a problem. An unexpected change in redemption behavior, such as in an economic downturn when consumers become more value conscious, can result in significant financial losses.

This can create an uncertainty and we have more dynamic tools to help them reduce that risk.

Addendum: We also spoke to Safwan Zaheer, who recently joined Loyyal’s board.What problem is Loyyal solving in marketplace?

Imagine boarding your favorite airline and earning miles immediately at the gate and upon arrival use these same miles to pay for an Uber ride. Or imagine instantly being credited with points as soon as you check into a hotel and then use these points throughout your stay. These are some of the possibilities enabled by Loyyal.

Why did you join the Board?

With any board opportunity one needs to consider what value they bring to the table. In Loyyal I saw an opportunity to help shape the direction of company and product, raise venture funds, and be involved in corporate development activities such as forging industry partnerships and building talent etc.

Instantly issuing and redeeming points/ rewards has long been a pipe dream of many financial services and retail executives and I'm excited about the value Loyyal brings to its customers.